PetroChina officials and industry analysts Wednesday insisted that the US$14.5-billion west-east gas pipeline project will be unaffected by the collapse of the proposed joint venture between PetroChina and a foreign consortium.

They said PetroChina, the nation's largest oil company, has enough funding and technical capability to develop the project on its own.

The project includes the development of gas fields in the Xinjiang Uygur Autonomous Region, operation of a 4,000 kilometer pipeline and supplying gas to Shanghai, the nation's economic hub.

Two years of negotiations came to an end on Monday when PetroChina sent "letters of termination" to Royal Dutch/Shell and ExxonMobil- two of the world's largest oil companies - and Russia's Gazprom.

PetroChina signed frameworks of agreements in July 2000 with the Shell-led foreign consortium to jointly build the project.

According to the non-binding agreement, the three foreign companies would each have had a 15 percent stake in the pipeline project, with PetroChina holding 50 percent and Sinopec, the nation's second largest oil company, holding 5 percent.

But the negotiations over the legal contracts became deadlocked.

National Development Reform Commission Vice-Minister Zhang Guobao has said that the major differences between the parties focused on the tenure of the joint venture, and the distribution of shares in the upstream resources between the partners.

Analysts said it was not surprising for foreign companies to be edged out of the project, because they have lost their bargaining power since PetroChina completed construction of the pipeline on Tuesday.

PetroChina announced on Tuesday that it had completed the western section of the pipeline, one year ahead of the schedule.

Without the investment from foreign partners, PetroChina started construction of the pipeline on its own in 2002.

"Foreign companies can contribute very little to this project now," said one senior PetroChina official.

"Foreign companies agreed to invest in the pipeline construction on the condition that they are allowed to participate in the development in the lucrative gas fields," said the insider. "But we are reluctant to give up more upstream resources to foreign companies."

The insider said PetroChina and foreign partners formed a joint working group to study plans for the development of upstream gas fields. But foreign companies have little say, if any, in deciding the plan.

"We had worried that there are not enough consumers in the gas market, and wanted foreign companies to share the risks," said the official.

"Now, it is not the problem of insufficient consumers, but a problem of insufficient gas."

Shell spokesman Nick Wood said yesterday said: "Cooperation on the project has been terminated, following discussions between all parties."

"We regret that we're unable to reach an agreement with PetroChina on this project, but we look forward to future operations and opportunities," Wood said.

PetroChina's spokesman was unavailable for comments yesterday.

PetroChina's shares yesterday were flat at HK$3.875 (49 US cents) yesterday on the Hong Kong stock market.

Liu Gu, an oil analyst with Guotai Jun'an Securities (Hong Kong), said the market was not surprised by the news since such rumors had been flying around for months.

Liu said: "PetroChina has enough cash and many financial resources such as banking loans and corporate bonds to fund the project."

Liu said she is optimistic about the project because China's gas market is taking off and is growing by 15 percent annually.

(China Daily August 5, 2004)